Welcome to the start of the week, and the last week before the schools return and the commuters' lot becomes an even less happy one.
The holiday season didn't deter markets last week from ending the week on a positive note. Equity markets globally ended the week in fine style, as investors took the view that economic recovery is well on the way. This was fuelled in no small part by the influential US Federal Reserve Chairman, Ben Bernanke, commenting that recovery was on the way in the States, which was further backed up by some positive US housing statistics out on Friday afternoon. Central Bankers meeting in Wyoming over the weekend kept their public pronouncements very low key, but the sense coming out of the meeting was one of doing what is necessary to keep any fledgling recovery going, and don't expect interest rates to start rising particularly quickly. All this positivity is good, but, as we all know, markets and market reaction can change dramatically from week to week.
Sterling had a volatile week on the exchanges last week, fuelled by the disparity in MPC voting over future QE volumes, and opens up this morning slightly weaker across the board. Statistics wise we have a fairly low key week ahead.

Finally we have some news on Cru, well nothing in black and white but Capita are nearly at the end of their valuation process.

This has been signified by the suspension of trade in the underlying cell companies.  We therefore hope that the funds will reopen shortly, though at present no timescale has been given. We will be in touch will all investors as soon as we hear any further news.

From A-day In-specie contributions have been available. They can offer individuals and companies a way to significantly increase pension funds whilst not having to find liquid cash. Commercial property can be used to make contributions.

Basic rules apply;

If the property is owned by the company the contribution will be an “Employer Contribution” If the property is owned by an individual then the contribution will be a “Personal Contribution”
If the in-specie contribution comes from the company then they will receive corporation tax relief as they would on a normal “Employer Contribution”.

If the in-specie contribution comes from the individual then the amount of the property that can moved into the fund, giving full tax relief, is a net amount at basic rate against the individual’s income. Tax relief of 20% currently, is then claimed back into the pension and if the individual is a higher rate tax payer then the additional 20% is claimed back via their personal tax return

In-specie Case Study

•         Property valuation £ 300,000
•         Earned income of £ 125,000 p.a. for 3 years
•         Move net contribution of property value into SIPP £ 100,000 p.a. for 3 Years
•         Tax relief £ 25,000 p.a. for 3 years

RESULT

After three years;

•         Full property value in SIPP                £ 300,000  •         Cash fund from tax relief                    £   75,000
•         Rent 6% will have gone in                 £   36,000
•         Pension fund                                      £ 411,000
•         TFC available of 25%  equals           £  102,750
•         Rental income of £18,000 p.a. can become pension

If an individual contributes an amount equal to their income it is worth pointing out that they will be a nil tax payer as they get full tax relief into their pension. This should be considered when there is a need to increase the personal income significantly to allow larger amounts of the property into the pension.

There is a move in the market to show that this option can work very well for groups of individual’s or a number of directors. There has been a significant increase in this type of contribution during the first 6 months of this year.

It if worth bearing in mind that once the in-specie contribution has been made it does create a pension fund that can be used to borrow against and we will look at this in more detail moving forward.

I have taken this from Standard Life's press release that has just been issued:

The Cutting Edge - Finance Act 2009 receives Royal Assent
The Finance Act 2009 has now received Royal Assent. The Act includes the pension and tax changes announced in this year's Budget dealing with pension contributions made between Budget day and 5 April 2011 by high income individuals. While the changes only have an immediate impact on a small fraction of the UK population the shockwaves, which resonate from removing the principle that people get tax relief on pension contributions at their highest marginal rate, should not be underestimated.
Following some sustained lobbying by the industry there was a relatively late change to the rules, introducing some further leeway for those high income individuals who have a history of paying irregular contributions. Full details of the revised rules and how they impact upon people is detailed below.
While the Finance Act is now law it is likely that some further changes will be introduced in two specific areas through forthcoming regulations. The first is around transfers. As things stand, high income individuals who move their pension provision to a new provider may fall foul of the new special annual allowance tax charge even if they don't increase contributions.
This Finance Act contains the rules covering the position between Budget day and 5 April 2011 - so that part is largely done and dusted. The Government suggests the rules for 2011 onwards will be included in a Finance Bill early in 2010. It's therefore likely that these measures will be law before any General Election. The Conservatives have said they are unlikely to repeal any legislation if they win the election, so it seems likely we will have to cope with these rules whichever Government is in power in future.

If you are wondering how this is likely to affect you, feel free to contact me.

That seems to have been the message of the latest Budget with the new 50 per cent income tax rate and a number of proposed changes to pension payment relief aimed at individuals with income over £150,000.

In addition anyone earning over £100,000 will see their personal allowances tapered away by £1 for every £2 over £100,000 earned, such that persons receiving income over £112,950 will have no personal allowances at all.

The new 50% income tax rate, the highest of any major economy in the developed world, will apply from 6 April 2010 as will the reduction in personal allowances meaning that the effective rate of income tax on income between £100,000 and £112,950 will be an eye-watering 60 per cent!

However, how much will the new 50 per cent tax rate actually generate for the Government coffers? Astonishingly, even the Government seems to think that the amount of tax it will raise will be negligible with Treasury figures revealing that they expect 69 per cent of those liable to pay the tax will find some ways of avoiding it.

The Institute for Fiscal Studies went even further and stated that the rises may not result any increase in tax takings as those individuals affected may decide to leave the country or retire early.
It said that those who stayed in the system would look for ways to reduce their taxable income by working less, contributing to a tax-free pension or converting it into other types of earnings which are taxed at lower rates.
Our own experience since the announcement of the 50 per cent tax rate and the restrictions on pension contribution reliefs certainly bears out the Institute for Fiscal Studies’ view as there has been a marked increase in interest from clients at looking at ways of reducing their taxable income below the thresholds that the new measures will apply from.

We have been able to advise them of a number of methods in which income can be sheltered from tax completely or how pension contributions can be made without falling foul of the new rules saving the clients significant amounts of tax immediately and also moving forward.

European Law Can Save You Tax

In the run up to the recent European Parliament elections there was much discussion on the so-called devolution of law-making powers to unelected European officials.

I am not going to get into the rights or wrongs of this debate but one thing is for sure when it comes to tax – the European Courts have the final say in determining whether UK tax legislation meets with European law.

A recent example of this involved Marks and Spencer. M&S set up subsidiary companies in France, Germany and Belgium to trade in those respective countries. After a number of years of poor trading, during which significant losses were made by the subsidiaries, the French company was sold and the German and Belgian companies closed down.

M&S submitted claims to surrender the losses from the subsidiaries to the UK parent company to set against the UK company’s profits. Not surprisingly the claim was swiftly rejected by the Revenue as the UK tax legislation clearly stated that only UK losses could be surrendered in such a manner. M&S appealed this decision on the basis that the UK legislation contravened European law and the High Court referred the matter to the European Court of Justice (ECJ).

The ECJ’s judgement was that domestic legislation was not allowed to prevent losses incurred in an overseas subsidiary being set against the parent company’s profits, providing that the overseas subsidiary had exhausted all possibilities of using these losses in its state of residence. The matter was then referred back to the UK Courts to determine whether the subsidiaries had indeed exhausted all possibilities of using the losses in their own countries and it was found that, as there was no realistic possibility of the German or Belgian subsidiaries re-starting trading, they had indeed fulfilled this criteria.

The result was that M&S has been able to utilise the losses incurred by the German and Belgian subsidiaries in a manner that is completely at odds with the UK tax legislation in force at the time therefore proving that, on matters concerning transactions between European member states, European law rules. The M&S case along with a number of others along similar lines has opened up many planning opportunities for UK resident individuals and companies. For example it is possible for a company about t commence a property development in the UK and which would normally suffer significant tax costs on the profit generated can structure their business in such a way that the profits are taxed in another European state where the tax cost would be minimal. Another example is companies holding land as trading stock which can be transferred offshore with the profit on the subsequent sale being taxed in a low-tax jurisdiction rather than the high-tax jurisdiction that is the UK.

More and more UK taxpayers are now taking advantages of the opportunities afforded by the ECJ rulings and, if you are about to start an enterprise where significant profits are expected, or have land held as trading stock in a company it is probably something you would like to consider.

If you would like further information, or discuss your own circumstances, please do not hesitate to contact us.

It is however an interesting discussion piece and highlights the unwillingness of employers to shoulder the burden of risk on pensions and the potential massive crisis that we may face funding retirement.
According to the Office for National Statistics' Pension Trends report in 2007 7.8 million people were saving into defined contribution schemes, thereby taking the risk of future retirement fund values themselves.
By contrast 7.9 million were saving into defined benefit schemes. About 2/3 of this group were public sector workers... (that's another topic for discussion in itself!)
According to ONS by the end of the next decade, private pension savings are likely to be one-third defined benefit arrangements and two-thirds defined contribution.
With auto-enrolement coming in 2012 and large companies such at BP and Barclays closing the door on their schemes we could well see, to quote the Economic Co-operation and Development, "...the financial crisis of the past two years.." turning into, "...a social crisis lasting for decades."

These ammendments can be summarised as follows.
- Special annual allowance increased from £20,000 to £50,000 - Allowable pension deduction when working out relevant income increased from £20,000 to £50,000 - No longer need to look back at the last two years earnings - Annual contributions,including recurring singles, will count as regulars (though have to take a three year average) - The rules won't apply to those aged 50 or older.
Note - these are amendments to a draft Bill.
The Finance Bill usually becomes an Act in July just before those Member of Parliament types head off for their summer hols - possibly 23rd July. I will post again with further details.
Jaime

I am critically aware that this is an extremely sensitive subject matter but one that needs to be discussed.

On Radio 5 Live this morning the headline news was that 115 Romanians were forced to flee their homes and take refuge in a local church in my home town of Belfast. As you will all know we are not strangers to trouble in Belfast but it appears more and more to be targeted towards immigrants.

The next news story featured was unemployment… Britain's unemployment expected to reach a 12-year high of 2.27m.

Are racist attacks on immigrants a symptom of unemployment?

Did the BNP win 2 MEP seats because of the MP expenses scandal?

Food for thought this morning.

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Jaime Steele is an Independent Financial Adviser in Belfast with the award winning company North Financial Management working with clients in Belfast, Northern Ireland and throughout the UK saving them tens of thousands in tax and building and managing their wealth.

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A recent survey carried out by the not-for-profit Chartered Institute of Housing (CIH) of 2,028 people found that the proportion of young people that consider owning their own home is in decline.

Are we becoming more like mainland Europe where people no longer consider their home to be their castle? Has the fundemental British desire to own property waned with a new generation or has the current economic climate effected a paradigm shift in the psyche of the youth?
My feeling is that the latter is correct.

"We've driven too many people into unsustainable owner-occupation," said CIH chief executive Sarah Webb.

"A generation has grown up believing it has to own at any cost - in part because we have not provided them with decent information about the alternatives." In the 25 to 34 age bracket, the proportion who believed that owning their own home was the ideal living situation fell from 83% a year ago to 69% now.

My feeling is that the price surge in property initally put younger people off or made it impossible to "get on the ladder". Follow that with a housing crash breeding fear amongst owners, a credit crunch with lenders collapsing and pulling out of the market, more difficult lending criteria (where once we had 115% mortgages for professionals and 6 times salary multiples) properties being repossessed hand over fist and we now have a situation where owning a home is a scary prospect.

Has a situation been created where the property ends up in the hands of the few and is rented to the masses? I hope not.